In previous blogs, I mentioned that Release No. 2013-005 was issued to improve the audit report for financial report users. As a result, Release No. 2013-005 will have a significant impact on auditors and the audit report. Since the Release No. 2013-005’s objective was to enhance the audit report, the financial users and issuers will be effected by these changes as well.
There are several different impacts that Release NO. 2013-005 could have on financial users. The first possible impact is that financial users may become confused with the discussion of audit procedures since these readers lack a proper understanding of the audit process and audit procedures (Yungmann & Drula, 2013). In addition, financial statement users may lack the context for the discussion of discrete audit procedures for a particular financial statement line item (Yungmann & Drula, 2013). The changes in the audit report could cause financial users to read duplicated information which would make the report not nearly as effective (Yungmann & Drula, 2013). In addition to making financial users read duplicated information, the Release No. 2013-005, may force financial users to read extensive discussion topics that are unimportant for them (Dalkin, 2013). As a result of adding addition disclosures about auditor independence, financial users may have a difficult time fully understanding the concepts regarding to auditor independence without an extensive discussion afterwards (Dalkin, 2013). This will cause the report to be cumbersome, which will hinder the benefit associated with this change. The changes created by Release No. 2013-005 have a potential to mislead financial users to believe that the auditors have an authoritative basis to conclude on the sufficiency, accuracy, or completeness of the other unaudited information (Yungmann & Drula, 2013). This would create an expectation gap between the financial users and the auditors which in the past has caused several law suits to arise. The changes associated with Release No. 2013-005 regarding to audit tenure can lead financial users to an incorrect interpretations about the company, its current fiscal situation, and the auditors (Dalkin, 2013).
As for financial issuers, they will also be significantly impacted by the changes stated in Release No. 2013-005. The first major impact would be that financial issuers will have to spend more on audit fees since auditors will have to spend more time on conducting the additional audit procedures. The higher fees have the potential to outweigh the benefits to the investors. In addition to spending more on audit fees, the changes stated in Release No. 2013-005 open up situations where the financial issuer will disclose sensitive information that normally would have not been required to be disclosed (Yungmann & Drula, 2013). An example of a possible situation is when a company discloses information regarding to control deficiencies that are less severe than a material weakness noted in the Company’s internal controls (Yungmann & Drula, 2013). The information regarding to this disclosure will be presented with a limited context and give the issuer a minimal opportunity to clarify the discussion during the audit committee meeting regarding this matter (Yungmann & Drula, 2013). Besides spending more money, financial statement issuers will have to spend more time in the later stages of the audit where the issuers’ time is already limited (Yungmann & Drula, 2013).
References
Dalkin, J. R. (2013, December 11). PCAOB Rulemaking Docket Matter No. 034. Retrieved from U.S. Government Accountability Office: http://gao.gov/assets/660/659649.pdf
Yungmann, G. L., & Drula, C. T. (2013, December 11). PCAOB Rulemaking Docket Matter No. 034. Retrieved from National Association of Real Estate Investment Trusts: https://www.reit.com/sites/default/files/media/2013/NAREIT%20Comment%20Letter%20on%20PCAOB%20Auditor%20Report%20and%20Other%20Information%20Proposal.pdf
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